Finding the right employees – and keeping them – is becoming increasingly difficult for employers. Unemployment numbers are low which means employees can be more selective in their job searches. Now, more than ever, you must have the right benefits packages in place in order to win in this competitive landscape. And to attract the best and brightest young talent, you have to get creative.
The Problem?
You’ve probably heard this before: Student loan debt is now the second highest consumer debt (over $1.56T) trailing only mortgages (but notably ahead of credit cards and car loans). 69% of 2018 graduates used student loans and finished with an average debt of $29,800. And student loan debt is not unique to younger workers; 14% of parents took out an average of $35,600 in federal Parent PLUS loans. For employers, the student loan debt crisis has a number of implications. But for now, let’s focus on the retirement plan benefit.
Let’s assume you have some employees who are unable to take advantage of the retirement plan (and the generous matching program you’ve developed) because they are buried under a mountain of student loan debt. The question is: How can we develop benefits that address this crisis? Last year the IRS may have provided us with a big clue.
On August 17, 2018, the IRS published Private Letter Ruling 201833012 that allowed one company the ability to include student loan debt repayment as part of its 401(k) matching program. Here’s how it works:
The retirement plan provides an employer matching contribution of 5% of pay to any employee contributing at least 2% of pay (a 2% contribution gets the employee 5% from the company…pretty nice!). For those unable to contribute to the 401(k) due to student loan debt struggles, the company requested to be able to provide the 5% contribution (by way of a nonelective or “profit sharing”) to employees even if they are not contributing to the 401(k) plan. The catch is, employees must make payments of at least 2% of their pay toward their outstanding student loan debt.
This part is a little confusing, but there is also a year-end true-up match. In essence, so long as an employee is contributing at least 2% of their pay toward student loans and/or the retirement plan, the company would make sure to get them the whole 5% for the year. This protects employees who enroll in the student loan benefit but contribute less than 2% of their pay, but are also contributing enough into the 401(k) plan to get to a combined contribution rate of at least 2%. Make sense? Good.
That all sounds great, but we have to keep in mind that this Private Letter Ruling (PLR) is just that: private. This does not set a precedent that can be used and cited by any organization other than the one which requested the ruling. And if you are thinking about requesting a PLR for your company, keep in mind:
- It can cost upward of $10,000 from start to finish
- It takes a long time
- Your requested program may not be acceptable
Where Does this Leave Us?
Just because you don’t have your own IRS PLR doesn’t mean you can’t implement an effective student loan repayment benefit. In fact, removing the tie-in to your retirement plan affords you virtually endless flexibility to tailor a program that suits your employees and organization’s needs. You can map out a benefit that makes your organization a preferred destination for job-seekers and keeps your employees happy. And this can all be administered easily and within a pre-determined budget. So what are you waiting for?